5.11 If the interest rate is 5%, the future value of a 50-year, $1 annuity will be...
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5.11 If the interest rate is 5%, the future value of a 50-year, $1 annuity will be (1.05)50-1 .05 =209.348 Therefore, we need to choose the cash flow, C, so that CX 209.348 = $500,000. This requires that C = $500,000/209.348 = $2,388.37. This required savings level is much higher than we found in Example 5.11. At a 5% interest rate, current savings do not grow as rapidly as when the interest rate was 10%; with less of a boost from compound interest, we need to set aside greater amounts in order to reach the target of $500,000.
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Fundamentals Of Corporate Finance
ISBN: 9780073382302
6th Edition
Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus
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